The extent to which nursing homes rely on the use of contracted licensed staff, factors associated with this staffing practice, and the resultant effect on the quality of resident care has received little public attention. Merging the On-line Survey Certification and Reporting System database with the Area Resource File from 1992 through 2002, the authors regressed organizational and market-level variables on the use of 5 percent or more contract full-time equivalent registered nurses and licensed practical nurses. Since 1997, the proportion of facilities using 5 percent or more contract licensed staff more than tripled. Use of contract nurses was associated with more deficiency citations, characteristics of poorer facilities, and tight labor markets. Nursing homes increasingly rely on contract nurses. The failure of nursing homes to attract and retain a competent, stable workforce creates a vicious cycle of staffing practices, which may lead to decline in quality of care.